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Know who is eligible for presumptive taxation scheme

By Tax Guru

As per sections 44AA of the Income-tax Act (I-T Act) , 1961, a person engaged in business or profession is required to maintain regular books of account under certain circumstances. To give relief to small taxpayers from this tedious work, the I-T Act has framed the presumptive taxation scheme under Sections 44AD, Sections 44ADA, Sections 44AE, Section 44BB and Section 44BBB. For small taxpayers, the I-T Act has framed presumptive taxation schemes as given below:

Section 44AD: Computation of income on estimated basis in the case of taxpayers [being a resident individual, resident Hindu undivided family or resident partnership firm (not being a limited liability firm] engaged in certain business subject to certain conditions.

Section 44ADA: Computation of professional income on estimated basis for assessee being a resident in India and engaged in a profession referred to in Section 44AA(1) subject to certain conditions.

Section 44AE: Computation of income on estimated basis for taxpayers (being an individual, HUF, AOP, BOI, firm, company, co-operative society or any other person resident or non-resident) engaged in the business of plying, leasing or hiring goods carriages, subject to certain conditions.

Section 44B: Taxation of shipping profits derived by a person being a non-resident in India, subject to certain conditions.

Section 44BB: Computation of taxable income of a person being a non-resident (may be an India citizen or a foreign citizen) from activities connected with exploration of mineral oils, subject to certain conditions.

Section 44BBA: Computation of income in respect of foreign airlines, subject to certain conditions.

Section 44BBB: Computation of profits and gains of foreign companies engaged in the business of civil construction, subject to certain conditions.

The presumptive taxation scheme of Section 44AD can be adopted by resident individual, resident HUF, resident partnership firm (not limited liability partnership firm). The scheme gives relief to small taxpayers engaged in any business, except in the business of plying, hiring or leasing goods carriages referred to in Sections 44AE, a person who is carrying on any agency business, a person earning income in the nature of commission or brokerage, any business whose total turnover or gross receipts exceeds Rs 2 crore.

Apart from above discussed businesses, a person carrying on profession as referred to in Section 44AA(1) is not eligible for presumptive taxation scheme. A person who is earning income in the nature of commission or brokerage also cannot adopt the presumptive taxation scheme. The presumptive taxation scheme of Section 44AD can be opted by the eligible persons if the total turnover or gross receipts from the business do not exceed the limit of Rs 2 crore.

In case of a person adopting the provisions of Section 44AD, income will be computed on presumptive basis, i.e., @ 8% of the turnover or gross receipts of the eligible business for the year. Income shall be calculated at rate of 6% in respect of total turnover or gross receipts which is received by an account payee cheque or draft or use of electronic clearing system or through such other electronic mode as may be prescribed.